COMPANY NEWS

COMPANY NEWS; Cray Loses Only Order For Product

By LAWRENCE M. FISHER,

Published: December 24, 1991

SAN FRANCISCO, Dec. 23—
The Cray Computer Corporation suffered a potentially crippling blow today as the initial customer for its first supercomputer system abruptly canceled its order. Cray had said last week that it was behind schedule on the new machine.

Cray Computer, which is the company spun off from Cray Research Inc. by the concern's founder and chief scientist, Seymour Cray, said that the Lawrence Livermore National Laboratory had advised the company that it would cancel the contract for a Cray-3, and instead buy a supercomputer from Cray Research.

Analysts said the loss of the sale raised the question of whether Cray Computer could survive. The list of customers for the biggest and most expensive supercomputers is a very short one, and with the continuing cuts in military spending, is getting shorter.

But Neil Davenport, Cray Computer's president and chief executive, said in a telephone interview that he was confident the company would find an alternative customer, and that it had sufficient cash to proceed.

"Clearly this was a major blow, but it's not a terminal blow," Mr. Davenport said. "Seymour Cray has finished machines under these sorts of circumstances before." Mr. Davenport said the letter from Lawrence Livermore "came as something of a surprise to us and came after a week of very little dialogue at all." He attributed the poor communications with the lab to a recent change in management of Lawrence Livermore's supercomputer operations.

The cancellation comes one week after Cray Computer said that it was making slower than expected progress toward completing the first Cray-3 supercomputer system. The company said then that Lawrence Livermore, the customer for the first system, had been informed of the delay in the testing and inspection of the systems and had expressed serious concern. But Cray Computer had also said that the company was discussing the effect of the delay with Lawrence Livermore.

As a result of Lawrence Livermore's decision to withdraw the order, Cray Computer said it would not realize projected revenues of about $30 million on the system in 1992, and that it would have to seek another customer for the machine.

"It's got to be a major setback both psychologically and financially to lose as visible and prestigious a client as Lawrence Livermore," said Gary Smaby, an analyst specializing in supercomputers with the Smaby Group in Minneapolis. "In this market you've got choices," he said. "In the old days you were willing to wait for Seymour's machine because the gain would be worth the pain."

Cray Research spun off Cray Computer in May 1989 after determining that it was too costly to develop two different supercomputer designs simultaneously. The parent company did, however, agree to provide up to $100 million in financing to its founder's fledgling effort.

Lawrence Livermore will be buying a time-tested supercomputer from Cray Research, the Y-MP C-90, which uses conventional silicon chips. By contrast, Mr. Cray's new Cray-3 machine is to be powered by gallium arsenide chips, a faster but still unproved technology.

Cray Computer was scheduled to deliver the first Cray-3 in the third quarter of 1992, and Mr. Davenport said the company was confident it could still deliver the machine at that time.